The lawyer for internet millionaire Kim Dotcom is claiming the FBI has taken copies of evidence from New Zealand without permission.
A two-day judicial review is being held at the Auckland High Court over whether the warrant used by police to raid Mr Dotcom's house on internet piracy charges is too wide and breached his privacy.
A range of electronic items and data was seized in the initial raid on Mr Dotcom's Auckland property in January this year. Private information seized includes pictures and videos of his family.
A lawyer for the Crown told the court on Wednesday the FBI has taken some of the seized material back to the United States.
Mr Dotcom's lawyer Paul Davison, QC, said he believes that an order by the Solicitor-General that the items remain in New Zealand was still in force.
Mr Davison says if that ruling means copies of the items can be taken, then the order is highly misleading and shows that the process has been off the rails.
The Crown says it thought Mr Dotcom's lawyers were aware the material had been taken out of the country and will file documents in support of that view to the court next week.
Kim Dotcom, who was in the public gallery, wiped away tears and walked out of court.
The seized items, along with other evidence, led to the arrest of Mr Dotcom and three other men in January.
All are on bail awaiting a hearing in August on their extradition to the United States to face charges of internet piracy relating to their file-sharing website Megaupload. It is considered the largest copyright breach alleged in the world.
Parties can't agree deal
The Crown and lawyers for Kim Dotcom told Justice Winkelmann on Wednesday that they could not agree on a deal which could have helped resolve some of their legal dispute.
Lawyer Paul Davison told the court that Mr Dotcom would divulge the passwords and encryption codes for his all his electronic storage devices if authorities give back copies of private information from his personal computers.
Justice Winkelmann urged the parties to consider the offer. But lawyers for the Crown and Mr Dotcom told her that they could not come to an agreement on how the deal would operate.
The Attorney-General's lawyer, Mike Ruffin, said at it would take at least two-and-a-half months to copy the data. He says the time and skill involved would be a serious problem for New Zealand authorities and the original versions would be altered.
The judicial review hearing is due to finish on Wednesday.
NZ urged to stand up to US agencies
Kim Dotcom's lawyer in the United States says the New Zealand judicial system should stand up to American agencies.
Ira Rothken says he is concerned that the FBI will take all the evidence to the US and that will affect his client's extradition hearing.
Mr Rothken says New Zealand should stand up for its values and not give into the demands of a foreign country.
Megaupload was indicted in a federal court in Virginia on 19 January and the site was then shut down.